What are the common faults of outsourcing? Are they different for Russian and international businesses? How to select outsourcing partner? Which SCM processes to outsource? Find out about that in my presentation at Adam Smith FMCG 2014 Forum
1. The objectives of outsourcing are not clear
- Not clearly defining goals and objectives before starting the outsourcing process
- Outsourcing undesirable functions versus the ones that provide greatest competitive advantage.
- Launching an outsourcing relationship without deeply understanding your core
competencies versus the work that can most effectively be outsourced.
2. Expectations are not set correctly
- Having an unrealistic timeline for any of the steps of the outsource process including start-up.
- Underestimating the time required to negotiate a service agreement.
- Expecting too much from a provider in the early months after “go-live.”
Poorly developed and documented service or product specifications
Insufficient knowledge of service provider capacity limitations.
3. Inflexible outsource relationship Changing buyer needs (3 пункт)
- Not establishing an outsource relationship that has sufficient flexibility to deal with business fluctuations.
- Lack of a formal “lessons learned” roundtable on outsourcing in general and, specifically, established outsourcing relationship.
- Casting your outsourcing relationship in stone
4. Inadequate risk analysis and financial planning
- Inadequate risk analysis
- Making the decision to outsource without complete information on internal costs and processes.
- Not considering the full impact of an outsourcing agreement on a company’s financial condition.
- Inadequate business case development for the outsourcing decision.
5. No concurrent change in workplace culture
- Not training the provider on critical elements of the company product line or service expectations.
- Insufficient skill set for managing the selection process
6. Unresolved operational issues in the service agreement
- Not getting the operational issues resolved in the service agreement before moving into the legal aspects of the agreement.
- Not having the proper internal skill set to effectively manage the selection process.
- Underestimating the importance of process standardization.
7. Absence of exit strategies
- Lack of a contingency plan for major disruptions at the service provider.
- Not building in sufficient client mechanisms to resolve issues.
1. Complexity
Less complex (i.e. more commoditised) systems are more conducive to outsourcing
Very complex, extensively customised
2: Complex, some customisation
3: Medium complexity
4: Low complexity, no customisation
5: Commodity service
2. Service Maturity
The more mature and stable the service / system, the easier to outsource
1: New, undeveloped or ad hoc service
3: Process-driven, repeatable service
5: Mature service with documented, standard processes in line with industry best practice
3. Level of Change
The lower the level of change (e.g. enhancements, fixes), the easier to outsource
1: Very high
2: High
3: Medium
4: Low
5: Very low
4. Criticality
The less business critical a system is, the easier it is to outsource
1: Vital
2: Critical
3: Important
4: Not critical
5: Basic
5. Perceived Quality
The lower the customer perception of quality, the easier to outsource
Service perceived as being good quality and a positive differentiator for the organisation
3: Neutral customer perception
5: Very low quality perception among customers
6. External Facing
Internally facing systems are better suited for outsourcing
: Primary function is customer interaction
2: Primary function is customer facing
3: Customer interaction required
4: Mostly internal
5: Completely internal
7. % of Contractors
The greater the percentage of contractors, the easier to outsource
1: 0% to 5%
2: 5% to 10%
3: 10% to 15%
4: 15% to 20%
5: 20% plus
8. Market Maturity
The more mature and competitive the market, the easier to outsource
1: Undeveloped monopoly market or fragmented niche market
3: Maturing market dominated by a small number of key players
5: Mature, global market with an abundance of capable suppliers of varying size
9. Skill Availability
The more skills that are available the easier to outsource
1: Unique skill set, only available in-house
2: Extensive special training required
3: Standard skill set, some special training required
4: Standard skill set
5: Skill set readily available
10. Brand Impact
The smaller the impact on the organization’s brand, the easier to outsource
1: Major negative impact on brand or organisational culture
2: Minor negative impact
3: Negligible minor impact
4: No impact
5: Minor positive impact on brand or organisational culture
One key benefit of the RFS model is to allow clients to better communicate complex outsourcing requirements to vendors.
These complex agendas often raise questions that don’t have a single right answer; indeed, clients often don’t know what many of the questions should be. In such instances, the RFS can reveal new and innovative options and address the ambiguity of the initiative.
Under an RFS sourcing model, the customer describes the general characteristics of their IT or operational environment, overriding objectives, major concerns, and vision of the desired future state. Rather than dictate the specific terms to be adhered to, clients provide potential suppliers the flexibility to propose unique solutions.